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The Credit CARD Act of 2009 includes a requirement that pertains to how payments made on a credit card account are applied, when there are different interest rates applicable to different portions of the balance.

This becomes an issue, for instance, when a cardholder has both a cash advance balance and a purchase balance, and the card issuer charges different rates on these balances.

The consumer would generally benefit from applying payments to the balance that's charged at the highest interest rate, while the card issue would prefer to apply payments to the balance that's charged at the lowest rate, which is exactly what card issuers had generally done prior to the 2009 law.

They are still allowed to do this, but only on the portion of the payment designated as the minimum payment. Any additional amount must be applied to the balance that's charged at the highest interest rate. The pertinent portion of the law seems to be quite clear:

Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

American Express claims that they comply with the law, but they put their own spin on this:

As long as the balances in question have been billed, then American Express is complaint with this portion of the law. But they don't follow the law on the unbilled portion of balances. So if you've made a charge since the last statement was issued, and that is subject to a higher rate of interest than other balances, your payment in excess of the minimum balance will not be applied to your latest charges, in spite of the fact that they are at the higher interest rate, in direct contravention of this law.

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Revision r1.1 - 16 Jun 2011 - 07:58 by EliMantel web search for EliMantel
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